Economics Outline 2014 Farm Bill Decisions Univ. of Illinois Decision Tool –fsa.usapas.com TAMU/FAPRI Tool – USDA Decision

Economics

Outline• 2014 Farm Bill Decisions• Univ. of Illinois Decision Tool

– fsa.usapas.com

• TAMU/FAPRI Tool– https://decisionaid.afpc.tamu.edu

• USDA Decision Timeline

• Regional Meeting Schedule and Agendas• Input From You

Economics

Outline

Base Reallocation Decision• Can’t increase base – only reallocate• Decision made by owner. Applies to all covered crops

and is in effect with the 2014 crop• Choices are to retain base as of September 30, 2013

OR reallocate proportional to planting & prevented planting from 2009-12

• If a crop was prevented from planting but planted to a subsequent crop, you choose which acreage to count but can’t count both

• Prevented has to be due to natural disasters• Double cropped acres count IF an established

practice (USDA) for the area• Base can’t exceed crop acres (except for double crop)

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Base Reallocation Example

Base Acres Average Reallocation Reallocation9/30/2013 2009 2010 2011 2012 2009-12 Percentage Option

Corn 50 70 75 60 65 67.5 67.5% 67.5Soybeans 35 30 25 40 35 32.5 32.5% 32.5Wheat 15 0 0 0 0 0 0.0% 0

Total 100 100 100 100 100 100

Crop History

Payment Yield Update Decision• One time, irrevocable option made by owner• Made on covered crop-by-covered crop basis. Don’t

have to update all of the yields on a FSA farm• Choices are to retain the 2013 counter-cyclical

payment yield OR update to 90% of the average yield for 2008-2012

• A year is excluded if no acres were planted to a crop• If the farm yield is below 75% of the county’s 2008-12

average, use 75% of the county’s 2008-12 average• Decision independent of the base reallocation decision

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Year Corn Corn Corn

2008 DNP No Records 95

2009 88 No Records 100

2010 120 No Records 120

2011 100 110 130

2012 150 120 120

Substitute Yield 70 70 70

2013 CC Yield 90 90 90

Yield UpdatingYield Updating

Could Update to: (88 + 120 + 100 + 150)/4 * .9 =103

Farmer SmithOn Farm 5 Yrs

Farmer JonesOn Farm 2 Yrs

(70 + 70 + 70 + 110 + 120)/5 * .9 =79

Farmer BrownOn Farm 2 Yrs

Obt

aine

d Fr

om P

rior T

enan

t

(95 + 100 + 120 + 130 + 120)/5 * .9 =102

Payment Yield Update Example

2008 2009 2010 2011 2012 Average PaymentYield per PA Planted no 165 155 No 35 2008-12 Yield

evidence Acres75% of 2008-12County average 107 107 107 107 107

90%Yield Used 107 165 155 107 134 120

** It might be a good idea to update the payment yield even if you are not going to enroll in PLC. You never know what future Farm Bills will have for Title I programs or your ability to update your history.

Price Loss Coverage (PLC)

Reference Prices

2014 Farm Bill 2008 Farm Bill

% Change from 2008

Wheat $5.50/bu. $4.17/bu. +32%

Corn $3.70/bu. $2.63/bu. +41%

Grain Sorghum $3.95/bu. $2.63/bu. +50%

Barley $4.95/bu. $2.63/bu. +88%

Soybeans $8.40/bu. $6.00/bu. +40%

Rice $14.00/cwt. $10.50/cwt. +33%

Peanuts $535/ton $495/ton +8%

PLC Payment Calculations

(Reference Price – Effective Price) x Payment Yield x Payment Acres

– Effective price = max(MYA Price, Loan Rate)– Payment Yield is old CCP yield or update to 90% of

2008-12 average yield per planted acre– Payment Acres is base acres– Paid on 85% of Base Acres

Example: Farm has 100 acre corn base with payment yield of 150 bu/a MYA price is $3.50/bu.PLC Payment = ($3.70 -$3.50) x 150 x 100 x 85% = $2550

Agriculture Risk Coverage, County Coverage (ARC-C)

• Area-based revenue guarantee

• Guarantee based on 5-year Olympic average of county yield and 5-year Olympic average of US MYA price

• Covers losses between 86% and 76% of benchmark revenue

• Paid on 85% of base acres

• Producers can choose to participate on a crop-by-crop basis

Agriculture Risk Coverage (Area Election)

Producer Loss

Crop Insurance Stand-Alone

(66% for 75% RP)

Crop Insurance Premium

For ARC Benchmark Revenue Based On 5-Year Olympic Average County Yields/National MYA Prices (or Ref. Price)

14% Loss

Coverage between 86% and

76% of revenue benchmark.

ARC (85% Base Acres)

Revenue based plan (paid out on base acres)

Individual Crop Program

ARC County Example• Olympic Avg. MYA Corn Price = $5.30 and

Olympic Avg. County Yield = 151 bu/ac.• Benchmark Revenue = $800 = ($5.30 x 151)• Revenue Guarantee = $688 = ($800 x 0.86)• Maximum ARC-C Payment = $80 = ($800 x 0.10)• 100 base acres• Actual County Yield = 160 bu/acre and Actual

MYA price = $4/bu.• Actual County Revenue = $640 = (160 x $4)• ARC-C Payment = $4,080 = ($688 - $640) x 100

x 85%12

Agriculture Risk Coverage, Individual Coverage (ARC-I)

• Multi-crop, multi-farm coverage– Benchmark revenue is based on all covered

commodities on a farmers share across all farms in which the producer has an interest

• Individual benchmark calculated as 5-year Olympic average revenue (higher of reference price or US MYA price) across all covered crops and farms, weighted by current year plantings

• Covers losses between 86% and 76% of benchmark revenue

• Paid on 65% of base acres

ARC – Individual Example – Part 1: Determining the Revenue Guarantee

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Total Acres 500

Corn Soybeans Wheat Corn Soybeans Wheat2009 185 65 50 2009 $3.55 $9.59 $4.872010 170 60 52 2010 $5.18 $11.30 $5.702011 195 68 47 2011 $6.22 $12.50 $7.242012 90 45 48 2012 $6.89 $14.40 $7.772013 140 48 50 2013 $4.50 $12.70 $6.87

Revenue2009 657$ 623$ 244$ 2010 881$ 678$ 296$ 2011 1,213$ 850$ 340$ 2012 620$ 648$ 373$ 2013 630$ 610$ 344$

Avg. 722.45$ 649.78$ 326.73$

2014 Plantings 200 200 100

Benchmark 614$ Guarantee 528$ 61.42$ max

MYA PricesYield

ARC – Individual Example – Part 2: Determining Payments

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2014 Plantings 200 200 100

Benchmark 614$ Guarantee 528$ 61.42$ max

2014 Prices 3.90$ 10.35$ 6.30$ Total2014 Yield 144 48 532014 Production 28,800 9,600 5,300 2014 Revenue 112,320$ 99,360$ 33,390$ 245,070$

2014 Rev / Acre 490.14$ ARC-I Pmt. Rate 38.11$ Total Base Ac. 450ARC-I Payment 11,146$

FARM PROGRAM DECISION TOOL

University of Illinois

fsa.usapas.com

Development & Outreach Coalition

• University of Illinois• Watts & Associates• The Ohio State University• Michigan State University• Delaware State University• University of Arkansas-Pine Bluff• North Carolina A&T University• Montana State University 1

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FARM PROGRAM DECISIONS

• Farm Bill Toolbox on farmdoc

• Walk farmers through decision matrix and how best to use the APAS tool

• Are 3 sets of decisions; 7 steps towards making them

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FARM PROGRAM DECISION MATRIX

Step 1: Collect Farm informationProducers advised to collect necessary information for each FSA farm

FSA August letter: base, yields, acres planted

Yield history for 2008 to 2012; crop insurance records count

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Step 2: Retain or Update YieldsLandowner decision; keep current (FSA letter) or update to 90% of 2008-2012

Need cropping history; Crop Insurance records count

Crop-by-crop decision; generally, choose the one that results in highest yield

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UPDATE PAYMENT YIELDS

Select state, county and crop

Producer needs yield history for 2008 to 2012 crop years

Enter historical yields per planted acre

Producer advised to select the highest yield

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Economics

Let’s Try It!• Handout has the farm yields (per planted

acre) for 2008-2012

• Notice that the decision tool automatically substitutes the plug yield if the farm yield is lower than the plug – (75% of the county average yield from 2008-

12)


Step 3: Retain or Reallocate BaseLandowner decision; all program crops on farm; will not increase or decrease total

Keep current or reallocate to ratio of 2009-2012 plantings of program crops

Generally, look to increase base for crops depending on potential for payments

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REALLOCATE BASE ACRES

Using information from FSA letter for each farm

Use “add a crop” menu for each program crop with base acres

Enter existing base acres on the farm for that crop

Enter planted acres for each crop on the farm, 2009 to 2012 crop years

Compare reallocation to current base acres for decision

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Economics

Let’s Try It!• Handout has the farm planted acres from

2009-12 and the current base acres

• Notice that you have to enter zero’s for crops that aren’t planted in 2009-12

• Reallocate to crops that are likely to payout more frequently


Step 4: Compare ARC-CO & PLCLandowner & producer; crop-by-crop decision

ARC-CO: county revenue program; 5-year Olympic average MYA prices & county yields

PLC: price only; deficiency payment when MYA price is below reference price

APAS Sample Farms for quick, simple comparison

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SAMPLE FARM

Estimated expected payments available per acre by crop

Available on a one year horizon or 5 year horizon

Because it is on a crop-by-crop basis, ARC-IC is not shown

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Step 5: Consider ARC-IC

Landowner & producer; all program crops

Individual, farm-level revenue program using farm’s yields for all program crops with base

5-year Olympic average revenues, added together and weighted by planted acres

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SAMPLE FARM

Expected Program Payments

•For all crops using the sample farm’s acreage

•Scrolling over bar will provide detail on expected payment

•2014 crop year & Average expected payments for the 5-year horizon (2014-2018)

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Step 6: Consider SCOSupplemental Coverage Option; crop insurance

County-triggered (86%) down to COMBO policy

Applied to underlying policy deductible

Is only available for crops in PLC (or no program) 32

SAMPLE FARM

Expected SCO shown:

Depends on COMBO policy

Only shown in 5-year horizon b/c not available in 2014

Shown along with PLC for comparison to ARC-CO

Disclaimer needed for counties where it is unavailable

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SAMPLE FARM

Safety Net Analysis:

Using different levels of target revenue

Compare probability of reaching target revenue

With no programs

With ARC-CO

With PLC & SCO

With ARC-IC

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Step 7: Decisions & Sign-upDesigned to help producer make an informed decision

Program decision must be made for 2014 crop or forfeit payments, deemed in PLC 2015-2018

Elections on programs, base and payment yields

Sign-up (yearly) to enter contract for payments

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Questions and Thank You

www.farmbilltoolbox.farmdoc.illinois.edu

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ADDITIONAL SLIDESAPAS Sample Farms

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SAMPLE FARMS

Quick Comparison of Programs

Select your state

Select your county

Select your price series

•CBO = Congressional Budget Office May 2014; higher range

•USDA = WASDE forecast prices; lower range

Note estimated crop insurance

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SAMPLE FARMS

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SAMPLE FARMS

NASS data of crop acreages for counties in the Crop Reporting District

Average planted acres from 2009 to 2012 crop years

Scroll over to see the average acreage for each crop

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SAMPLE FARM

The sample farm is constructed based on acres of top 4 crops; scaled to $500,000 revenue for the whole farm (2013 prices)

This is a sample farm for the county

Can be used for simple and quick program comparison

Can be used as a ‘benchmark’

Can change the number of acres for each crop to better align with farm’s base

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SAMPLE FARM

Expected Program Payments

•For all crops using the sample farm’s acreage

•Scrolling over bar will provide detail on expected payment

•2014 crop year & Average expected payments for the 5-year horizon (2014-2018)

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SAMPLE FARM

Click “Show Prices” to see the two price series (CBO & USDA) available

Represent a high price and low price scenario for quick comparison of programs

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SAMPLE FARM

Expected payments also available per acre by crop

Available on a one year horizon or 5 year horizon

Because it is on a crop-by-crop basis, ARC-IC is not shown

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SAMPLE FARM

Safety Net Analysis:

Using different levels of target revenue

Compare probability of reaching target revenue

With no programs

With ARC-CO

With PLC & SCO

With ARC-IC

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FSA Training on ARC/PLCPart 14

Louisville, KySeptember 24-26, 2014

https://decisionaid.afpc.tamu.edu/

2014 Farm Bill and Insurance 2014 Farm Bill and Insurance Decision Aid Developed by the Decision Aid Developed by the

NAAFPNAAFP

04/21/23 46

A Few Things to Think AboutA Few Things to Think About

• All of the decisions required in the farm bill add to the producer’s ability to tailor the bill to fit their operations – not just add to complication

• There will be plenty of time to gather needed info, analyze options, and make sign-up decisions – no reason to panic

• Two kinds of producers – those who want to maximize their government payments and those who want to manage risk– It is one thing to use point estimates to show how

programs work – quite another for evaluating alternatives under risk04/21/23 47

Discussion of NAAFP Decision Discussion of NAAFP Decision AidAid

• National Association for Agriculture and Food Policy (NAAFP) has been working on the decision aid for nearly 2 years– AFPC at Texas A&M– FAPRI at University of Missouri-Columbia

• Applied for and received funding from USDA-FSA to develop nation-wide decision aid

• Available today at:https://www.afpc.tamu.edu/models/decisionaid.php

• Available soon on the USDA-FSA website04/21/23 48

https://www.afpc.tamu.edu/models/decisionaid.php

https://www.afpc.tamu.edu/models/decisionaid.php

Overview of NAAFP Farm Bill Overview of NAAFP Farm Bill Decision AidDecision Aid

• Register as a producer or multi client user– Email address and password protect your data– Email address allows us to contact user when FSA

changes rules or new price projections are available

• Enter data for all FSA Farm and Tract Numbers– All Crops and their Practices by Tract number– Types not critical to FSA but important to RMA for SCO,

STAX, and insurance

• Analyze yield update, base reallocation, ARC-IC, ARC-CO, PLC, SCO, STAX, and insurance options

04/21/23 49

Winter Wheat (Type 11)

Spring Wheat, exc. Durum (Type 12)

Durum Wheat (Type 15)

Why Enter Crop Types?Why Enter Crop Types?

“Wheat is Wheat” quoted from an FSA Expert

RMA User-Specified Type FSA – “All Wheat”

• ARC/PLC interact with crop insurance (SCO, Yield Protection, Revenue Protection, etc.)

• To analyze this interaction we must analyze farm units at the RMA tract/farm unit level

• The decision aid requires practice and type for each crop04/21/23 50

Overview of NAAFP Farm Bill Overview of NAAFP Farm Bill Decision AidDecision Aid

• Producers’ data are stored in the decision aid– Data accessed by a user name and password

• We encourage producers to enter their data now and run the tool for each decision– Presently farmers should be using the tool to analyze

Yield Update decision– Next farmers can consider the interaction between

Base Reallocation and PLC, ARC-CO, ARC-IC Election• This decision should be tested with multiple price scenarios

– Before final election, farmers can re-run the analysis to see if updated price outlooks in the Spring changed their preferences

04/21/23 51

Preparation for Using Preparation for Using NAAFP Decision Aid NAAFP Decision Aid

• Information needed for the Decision Aid are available from two primary sources– FSA Reported Commodity Crop History Summary

(letter from FSA to producers, August 2014)

• FSA farm number• Base Acres and CCP Yield for covered crops• Planted Acres

– Crop Insurance Actual Production Report• Historical yields and planted acres• Ten years of yields preferred but 2008-2013 is essential

04/21/23 52

FSA Crop History FSA Crop History SummarySummary

04/21/23 53

Insurance Yield & Acreage Insurance Yield & Acreage ReportReport

04/21/23 54

NAAFP Crop/Unit Information SheetNAAFP Crop/Unit Information Sheet

04/21/23 55

NAAFP Information Sheet Ex. Iowa NAAFP Information Sheet Ex. Iowa FarmFarm

Historical Data needed for risk analysis

Data needed for risk analysis, yield update, and base reallocation

04/21/23 56

First Step Is to RegisterFirst Step Is to Register

04/21/23 57

Producer data is Saved, Email Producer data is Saved, Email to Notify Regarding FSA to Notify Regarding FSA

UpdatesUpdates

04/21/23 58

Producer and Multi Client Producer and Multi Client UsersUsers

04/21/23 59

Create Client Records & Switch Create Client Records & Switch ClientsClients

04/21/23 60

Farm with Two Crops and One FSA Farm with Two Crops and One FSA NumberNumber

04/21/23 61

Yield Update AnalyzerYield Update Analyzer

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Results for Yield UpdateResults for Yield Update

• Producer can print the FSA Yield Worksheet• Print a separate form for each FSA number. Fill in the name and

email address for contact person, farm number, historical yields, state code, and county code.

04/21/23 63

Select the Base Acre Reallocation & Select the Base Acre Reallocation & PLC/ ARC Decision AidPLC/ ARC Decision Aid

04/21/23 64

Base Reallocation Options Calculated Directly, Base Reallocation Options Calculated Directly, Next Analyze their Impacts on Payments by Next Analyze their Impacts on Payments by

ProgramProgram

04/21/23 65

Three Choices for Testing Three Choices for Testing Alternative Price ScenariosAlternative Price Scenarios

04/21/23 66

Output for Base Output for Base Reallocation, PLC, ARC-IC, Reallocation, PLC, ARC-IC,

and ARC-COand ARC-CO

04/21/23 67

Whole Farm Decision: All Whole Farm Decision: All Crops Elect the Same Crops Elect the Same

ProgramProgram

04/21/23 68

Crop-by-Crop Results for Crop-by-Crop Results for Each Program Election Each Program Election

OptionOption

04/21/23 69

Unfold Details to See Risk Unfold Details to See Risk of Payments for PLC and of Payments for PLC and

ACRACR

04/21/23 70

Crop-by-Crop Results for Crop-by-Crop Results for Each Program Election Each Program Election

OptionOption

04/21/23 71

Crop Insurance Analysis Crop Insurance Analysis Interacts with ARC/PLC+SCOInteracts with ARC/PLC+SCO

04/21/23 72


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04/21/23 75


04/21/23 76


Net revenue for the “best” combination of ARC/PLC and Insurance is presented.Result here is ARC, with Revenue Protection at 85%.

04/21/23 77


Option buttons allow user to test impact of program and insurance changes.

In this case PLC plus SCO rather than ARC reduces net revenue (40.4% chance of net revenue below lower target). 04/21/23 78


Option buttons allow user to test impact of program and insurance changes.

In this case PLC plus SCO and a lower level of underlying insurance coverage for RP to 75% rather than choosing ARC with 85% coverage reduces net revenue (69% chance of net revenue below lower target). 04/21/23 79

Future DevelopmentsFuture Developments

• Farmers will be able to print FSA forms– Yield update information form– Base acre reallocation form– ARC/PLC election form

• Print a separate form for each FSA number with:– Name and email address for contact person– Farm number– Historical yields and planted acres– State and county codes– AND the ARC/PLC election by crop by farm

• We are still testing and improving• More than 2,000 farmers, FSA, extension, and

insurance agents testing the decision aid04/21/23 80

SummarySummary

• Decision Aid available on AFPC website since June 20th

– More than 2,000 testers

• Will be on FSA website when officially released • All 21 covered commodities plus cotton available in

the official release version• Changes we expect after the official release:

– Monthly updates of price projections by FAPRI – USDA price projections updates as available– Tool will be updated as FSA updates rules

• Accessible by smart phones, tablets, iPads, anything that can access the internet

• Helpdesk available 7am to 7pm CST04/21/23 81

Thanks!!!

Visit our WebsiteWWW.AFPC.TAMU.EDU

for Podcasts on thefarm program and the Decision Aid

04/21/23 82

EconomicsSource: FSA

USDA Farm Bill Timeline

September 29, 2014 – February 27, 2015: Landowners have a one-time, irrevocable opportunity to reallocate base and update payment yields November 17, 2014 – March 31, 2015: Producers have a one-time, irrevocable decision to elect either (1) ARC-County or PLC on a covered-commodity by covered-commodity basis OR elect (2) ARC-Individual for all of the covered commodities on the farm. Mid-April 2015 – Summer 2015: Producers sign contracts to participate in ARC/PLC for 2014 and 2015 crop years


2014 Farm Bill Regional Meetings

Farm Bill Producer Meetings

Date Location Time Confirmation

12-Nov Owensboro 6:30 PM Confirmed

20-Nov Lexington 10:00 AMConfirmed, other counties around Lexington could join by Lync if they prefer.

20-Nov Maysville 6:30 PM Confirmed

20-Nov Pikeville Propose that Pike and other District 1 Counties join Maysville by Lync or Adobe Connect, Some may wish to travel to the Mason Co. Extension office

25-Nov Elizabethtown 1:30 PM Confirmed

1-Dec Princeton 10:00 AM Confirmed

2-Dec Hopkinsville 10:00 AM Confirmed

13-Jan London 6:30 PM Confirmed


Tentative Agenda

Welcome – county agent hosting (5 minutes) Farm Bill Decision – Todd Davis (30 minutes)

Base reallocation and program yield update decisions made by landowner ARC-County, ARC-Individual, and PLC decision made by the producer.

Working with FSA on this Decision – Marcinda Kester FSA (30 minutes)

The information needed, the USDA timeline, and the process of working with the county FSA office throughout this process.

Farm Bill Decision Aid Example – Todd Davis (30 minutes)

This presentation will demonstrate the decision tool that the County Agents will use to help landowners and producers with this decision.

Conservation Compliance – Randy Smallwood / Mark Ferguson (NRCS) 15 minutes

NRCS will talk about what conservation compliance is for crop insurance and how to get back into compliance.

Need Your Input• Which decision tool to present to farmers

– TAMU model more data intensive– UIUC model is “quick and dirty”– Play around with both and let me know what

works better for your farmers/landowners

• Regional meetings will be followed-up with meetings at the county or bi-county level

• Help in coordinating meeting dates/locations

Economics

Thank you for your attention!Questions?

Todd D. Davis

[email protected]

270-365-7541 x 243

Documents

Economics Outline 2014 Farm Bill Decisions Univ. of Illinois Decision Tool –fsa.usapas.com TAMU/FAPRI Tool – USDA Decision